IBK Securities noted on 4th that Cheryong Electric would face difficulties in achieving performance growth as large project orders this year are expected to decline. It maintained a target price of 50,000 won and an investment opinion of 'neutral.' The closing price of Cheryong Electric on the previous trading day was 48,800 won.
For the fourth quarter of last year, the revenue and operating profit on a separate basis decreased by 22.8% and 48.9% year-on-year, recorded at 50.8 billion won and 12.7 billion won, respectively. As competition in the U.S. distribution transformer market intensifies, it was expected that the performance and order flow would slow from this year, but it has materialized faster since last September.
IBK Securities expects that this year will see a decline in large project orders and an increase in small, one-off orders, making a contraction in the overall order backlog inevitable. Kim Tae-hyun, a researcher at IBK Securities, explained, "The demand for high-voltage transformers, such as those used in transmission, remains strong in the U.S., but the supply shortage of distribution transformers, such as pole-mounted and ground-mounted transformers, which the company specializes in, has been largely alleviated."
The increase in domestic distribution transformer competitors lowering prices to enter the U.S. market is also a burden. Kim noted, "The trend of strengthening exports of ground-mounted transformers, which have relatively higher technical barriers compared to pole-mounted transformers, is expected to continue."
IBK Securities estimates that Cheryong Electric's revenue and operating profit on a separate basis will each decrease by 7.6% and 14.5% year-on-year, reaching 24.3 billion won and 8.4 billion won, respectively.
Kim said, "While the U.S. accounts for nearly 100% of exports, considering the limited production capacity and decreased production efficiency due to country-specific product standards, it will not be easy to diversify sales destinations to the Middle East and Europe in a short period."
He added, "However, there is a possibility that domestic companies could benefit from the recent 25% tariff decision by the U.S., as the share of transformers imported from Mexico is currently the highest among medium and low-voltage transformers. "